Electricity & Gas Prices Slip As Demand Falls
Electricity & Gas Prices Slip As Demand Falls
Month-on-month annual power and gas prices fell in May as a result of increased temperatures and reduced coal prices. Lower carbon, coal, gas and oil prices have pulled annual power contracts lower. The monthly average annual October 2013 contract fell 2.3% to £51.6/MWh. This is 1% below the 2012 average of £52.9/MWh but 1% above the May 2012 average of £51.9/MWh.
- Annual gas prices also slipped as LNG supply concerns faded and oil prices remained low.
- The monthly average annual October 13 gas price decreased 1.8% to 67.4p/th, a 5% increase compared to May 2012 when the average price of annual gas was 64.1p/th.
- On average oil prices were flat.
- The monthly average price of Brent crude oil was $103.1/bl, 0.1% lower than April.
- A week economic outlook placed downwards pressure on oil prices, but they were supported by tensions in the Middle East.
The European Parliament’s rejection, on 16 April, of proposals to back-load 900mn carbon allowances under the EU Emissions Trading Scheme pulled carbon prices to an all-time low of €2.7/t. Prices have since recovered slightly after EU ministers re-affirmed their continuing support for the proposal
June 2013 - Crude oil and annual wholesale gas and power prices graph
Short-term prices tumble
Improving weather and comfortable supplies helped to reduce short-term prices. Gas demand has fallen by around 20% over the month.
Gas demand is mostly driven by domestic requirements for space heating; therefore, when temperature forecasts are low, prices rise. The day-ahead gas contract decreased 6% to a monthly average of 66.0p/th. Despite this fall, the contract is 15% higher than in the same period last year.
High wind speeds helped day-ahead power prices to fall by 6% as more expensive gas-fired power stations were pushed off the system. Prices averaged £48.2MWh over the month, and fell to £45.4/MWh early in May, the lowest level seen so far this year.
June 2013 - Spot power prices and temperatures graph
Oil surge could pull prices down over the next five years
The International Energy Agency has forecast global oil supply will outstrip oil demand growth over the next five years as a result of a surge in North American shale oil production. As oil is an important energy benchmark, against which other energy prices are compared, this could help to lower power and gas prices.
We could see increased day-ahead electricity prices over the next month, as a number of nuclear power stations are scheduled for maintenance and statutory outages. If the weather is cooler than expected, demand will have to be met by more expensive gas-fired power stations, pushing the price of electricity upwards.
June 2013 - Annual gas prices chart
Longer-term gas prices dropped as concerns about the level of LNG supplies reaching the UK faded (at least three LNG cargoes arrived in the UK over the last month). Demand for LNG in Japan, the most expensive LNG market and a competitor for LNG deliveries, has fallen 4% in the first quarter of 2013. Annual October 13 gas was down 1.8% to 67.4p/th, 5% higher than May 2012 and 2% higher than the 2012 average.
June 2013 - Spot gas prices chart
Relatively warm weather has reduced the demand for heating. This has, in turn, reduced near-side gas prices. Day-ahead gas prices fell 6% to 66.0p/th in May compared to 70.3p/th in April. The day-ahead gas contract is now 15% higher than the average for May 2012.
June 2013 - Annual power prices graph
Last month annual power prices slipped to an eight-month low of £51.1/MWh. Since then the annual contract has increased, reaching £52.2/MWh by 23 May. On average the annual October 2013 contract fell 2.4% to £51.6/MWh.
Longer-term electricity prices have fallen as a result of low coal, gas and oil prices. Coal prices this year are on average 10% lower than last year. Coal is a major driver of electricity prices in the UK as currently around 40% of daily supply is generated in coal-fired power stations.
June 2013 - Spot power prices graph
Strong renewables output and a fall in demand and gas prices helped to pull down the day-ahead electricity contract during May.
Day-ahead power dropped to a 2013 low of £45.4/MWh on 8 May. Month-on-month the contract fell 6% to average £48.2MWh, although this is still 7% higher than the 2012 average.
June 2013 - Key energy market indicators table
Supporting Electricity & Gas Market Price News
Business to be paid for reducing demand
Businesses will be allowed to compete alongside electricity generators in the proposed capacity market, under measures to be included in the Energy Bill.
Business to be paid for reducing demand
The government is planning to reward organisations for pledging to reduce their energy demand at peak times or in periods of system stress.
The plans, unveiled on 21 May, would allow public and private sector organisations to bid against companies offering to supply back-up power generation in the proposed capacity market. It is hoped that allowing businesses and organisations to take part in the auctions will create a trade-off between demand and supply that will reduce the need for new power stations to be built, while increasing energy efficiency and reducing power consumption across the UK economy.
The capacity mechanism, through which the plans will be implemented, could be enacted as soon as 2014. But the government is now considering testing the proposed approach in a pilot scheme ahead of a final decision.
More to come
The proposals, which formed part of the government’s response to a 2012 consultation on how best to incentivise electricity demand reduction, also noted that non-financial approaches could prove effective in cutting energy use. Options include better product labelling and providing businesses with more information on what they can do to reduce their demand. The government will report on these measures and consult on a proposal to bring in energy efficiency audits for large businesses later this year.
The best option
Many have welcomed the inclusion of businesses in the capacity market, but green groups have accused the government of missing an opportunity to encourage businesses and the public sector to permanently reduce energy use. These groups favoured the introduction of an energy efficiency feed-in tariff. But the government felt a premium payment, which would pay a subsidy based on each unit of electricity saved, would not enable the same trade-off against supply that the capacity market would deliver. It also said the variable prices available under the capacity market will fully reflect the value of demand reduction at times of system stress.
By limiting the number of new power stations needed the proposals will, over the long term, save consumers money. But the pressure is on to engineer a scheme that will function effectively.
Government delays smart meter roll-out
The roll-out of smart meters to 53mn homes and businesses across the UK is now scheduled to begin in the autumn of 2015.
Government delays smart meter roll-out
Plans to delay the roll-out by one year were confirmed by the government in a programme delivery plan, published on 10 May. It said that after consulting with industry on the design, build, and test phases of the programme, the “consistent message” was that more time was required if the smart meter roll-out was to get off to the best possible start.
To take account of the change of date the government also confirmed that the deadline for the completion of the roll-out will be extended to the end of 2020. Energy and climate change secretary Ed Davey has said he still expects the vast majority of smart meters to be in place by the original deadline of 2019.
The government also used the update to say that “good progress” has been made during the Foundation Stage of the smart meter programme. The final bidders are in place for the creation of the Data and Communications Company and a high-level regulatory framework has been established to protect domestic consumers and micro-businesses during the installation process.
This is a prudent decision that recognises the scale of the programme and the need to prepare carefully.
Energy reforms a priority for year ahead
The Coalition has confirmed that reforming the electricity market will be a major component of its agenda during the new parliamentary session.
Energy Bill to progress
The Queen’s Speech, which was delivered on 8 May, set out the government’s legislative programme for the year ahead. It confirmed that the government will move forward with legislation to “update energy infrastructure” and reform the UK’s electricity market through the Energy Bill.
Introduced last year, the Bill aims to reform the electricity market to deliver cleaner, more affordable energy for consumers. Its importance to the UK energy sector means it has been rolled-over to the new parliamentary session, and will continue its passage through Parliament during the coming months.
The Bill was scrutinised by MPs at committee stage in January and February this year. Report Stage and Third Reading will take place in early June. During the sessions MPs will consider amendments tabled to the Bill, including a proposal for a power sector decarbonisation target to be set next year. The Bill will then be considered in the Lords.
Reduce burdens on business
The government will also introduce a Deregulation Bill that seeks to reduce the regulatory burden on businesses. The Bill would, the government said, help in “tidying up the statute book” by repealing legislation that was no longer of any practical use. It will also establish a duty requiring non-economic regulators to consider the impact of their actions on the wider economy. Plans for a draft Bill that will establish “a simple set of consumer rights to promote competitive markets and growth” were also outlined.
It is good to see the government reaffirm its commitment to the Energy Bill, but it remains to be seen how quickly progress is made on putting plans into law.
Ministers call for EU carbon market fix by July
European ministers have set out urgent steps needed to reform the EU Emissions Trading Scheme (EU ETS).
In a joint statement issued on 7 May, ministers from nine EU member states, including the UK, criticised the European Parliament’s rejection of plans to delay (or back-load) the auctioning of 900mn allowances. They claimed that failure to strengthen the scheme could result in higher long-term costs in meeting the EU’s 2050 emissions reduction objectives.
The ministers stressed market interference should be kept to a “minimum”, but that a “one-off and targeted” intervention would limit market uncertainty. The statement called on the European Parliament to reach a resolution on back-loading proposals by July at the latest. It also urged the European Commission to develop a legislative proposal on long-term structural reform to the EU ETS by the end of 2013.
Biomass boiler project investment revealed by green bank
A Green Investment Bank-backed fund has injected £10mn into a project to replace inefficient non-domestic heating systems with biomass boilers.
The Bank has committed £4.9mn to an Equitix managed fund, called Energy Saving Investments, that was set up to manage small-scale, non-domestic energy efficiency projects. The deal is expected to mobilise a further £5.1mn of investment from the Equitix Energy Efficiency Fund. The project, unveiled on 17 May, will see biomass boilers fuelled by sustainably-sourced wood pellets installed in up to 60 public and private community facilities across the country.
According to the Bank, the project could help participating organisations save up to 30% on their energy bills.
Businesses urged for views on green compliance information
Views on how environmental compliance information could be made easier to find are being sought from businesses by the government’s environment department, Defra.
The department revealed on 16 May that it is to pull together a single version of all its compliance guidance on areas such as waste, wildlife protection, environmental permits, and land management regulations, in an attempt to make it clearer for companies to see what obligations have to be complied with. It is now seeking views on what information should be included in this new service, which it hopes will save businesses £1bn over the next decade.
Ofgem appoints interim chief executive
Energy regulator Ofgem has appointed Andrew Wright as interim chief executive, as the recruitment process for its two top officials continues.
Ofgem said Wright’s appointment, confirmed on 9 May, “will ensure continued strong leadership” when the current chief executive, Alistair Buchanan, steps down. Wright, currently head of Ofgem’s markets division, will take over from Buchanan on 27 June. “Andrew will be taking charge at an important point as Ofgem’s ground-breaking energy market reforms will start to take effect from this summer, and we continue to provide important updates on Britain’s security of supply,” said Lord Mogg, Ofgem’s current chairman, who is himself stepping down in September.
Lord Mogg’s successor is expected to be announced by the government shortly.
MEPs criticise government?s approach to energy efficiency
Conservative and Liberal Democrat MEPs have questioned the government’s “incoherent” approach to Display Energy Certificates (DECs).
In a letter to communities secretary Eric Pickles, sent on 7 May, the group questioned why Energy Performance Certificates (EPCs) rather than DECs were applied to the private sector given that the latter was “favoured by a great deal of commercial and professional interests”. The MEPs added that the government’s current approach is a missed opportunity to “far more effectively” encourage improvements in the energy performance of buildings.
The government abandoned plans to roll-out DECs to the private sector in 2012, in favour of the roll-out of EPCs. The move sparked a backlash because DECs, which are compulsory in the public sector, measure a building’s actual performance and are seen as more accurate than EPCs, which only cover predicted performance.
Government readies EU ETS compensation scheme
Energy-intensive industries have been instructed how to claim compensation to offset the indirect costs of the EU Emissions Trading Scheme (EU ETS).
The government published details on 20 May on how businesses operating in energy-intensive sectors can apply for a share of a £250mn compensation package, designed to help them cope with the financial impact of the EU ETS. £113mn of support will be made available through the first tranche of the scheme, with eligible businesses able to apply for a share from 3 June.
The government has also confirmed that further details will be published later this year on how the government plans to provide compensation to help firms cope with the impact of the carbon price floor, subject to the proposals securing EU State Aid approval.
UK must seize CCS potential, says government taskforce
Technologies to capture and store carbon emissions from power stations and industry could be cost-competitive with other forms of low-carbon generation by the early 2020s.
This is according to the government-backed Carbon Capture and Storage (CCS) Cost Reduction Taskforce's report on the sector's potential, which set out recommendations to develop the industry in the UK. Issued on 16 May, it called on the government to set out policies and financing programmes to push down costs in the industry and to ensure the sector reaches its full potential. It also said encouraging industrial CCS would help to safeguard the competitiveness of UK businesses, as the costs of emitting carbon under schemes such as the EU's Emissions Trading Scheme is set to increase over time.